When clients come in to talk about qualifying for long-term care assistance, such as Medicaid or Veteran’s benefits, we talk to them about different asset limits and look-back periods for transferring assets. Clients regularly report that their property was sheltered in a trust over five years ago, so that property should not count against them. Unfortunately, sometimes those assets were transferred into a trust, but not into one that shelters assets. It is true that there are types of trusts that are designed for asset protection and assets transferred into those trusts are not countable against that person, but there are also trusts that do not shelter assets.
The most common type of trust—a revocable living trust— offers protection, but not from the cost of long-term care. This is a great estate planning tool that accomplishes several goals. A huge benefit of this trust is that it avoids probate. In Arkansas, if there is property that is in your name when you die, your heirs will have to go through a probate process, which is timely and costly. But if your assets are owned by your trust when you die, whoever you designated as your trustee can wrap up your affairs and distribute your property, as you specified in your trust, without the necessity of a court proceeding. This type of trust can also offer great protection for your beneficiaries in case they are minors, disabled, or going through some type of legal issue when you pass away.
With this type of trust you get the ultimate flexibility and control. You have full access to the assets in your trust, and you can change the terms of the trust if your wishes change. This flexibility and control, however, means that the assets in this type of trust are considered your assets and countable against you when determining your qualification for state or federal benefits, regardless of when you transferred your assets into the trust.
There is another type of trust that we refer to as an asset protection trust. This is also a very valuable estate planning tool. It offers the same protection as the revocable living trust in regard to probate avoidance and protecting your beneficiaries. It also has the added benefit that any assets that are transferred into this trust are not countable against you. This type of trust, however, is irrevocable, so you can’t change the terms once the trust is set up. You also have to name someone else to act for you as your trustee. This lack of flexibility and control, however, means that the assets in this trust are not considered your assets when determining your eligibility for receiving benefits.
The type of trust that is best for you depends on your specific goals, the types of assets you have, and your stage in life. It’s important to understand that there are different types of trusts that accomplish different things, and you need to make sure your trust accomplishes the goals that are most important to you.